Starting a business is a rewarding endeavor. If you’re passionate about the items and services that you’re offering, your operation becomes a part of who you are. While the benefits of owning and running your own company are boundless, that is not to say that the process is easy. As a business owner, there are plenty of complex and pivotal decisions that you have to make. Without a doubt, choosing the proper business structure is one of those life-altering choices.

There are three general types of business structures in the Philippines – Sole Proprietorship, Partnership, and Corporation. These structures differ based on the number of key people involved in the operation. If you intend to be the sole owner of your business, you have the option to choose between the sole proprietorship structure or the one-person corporation structure.

This article explores everything you need to know about choosing the proper business structure as the single owner of a business. This includes the difference between sole proprietorships and one-person corporations.

 

Factors to Consider When Deciding on the Business Structure of Your Business

One of the first things you need to do as a business owner is to formalize your operation by choosing the structure that best fits your needs. Again, this decision isn’t something that you can rush. There are several factors that you need to consider before making a choice:

• Degree of Control
  As a general rule of thumb, the more players you have, the more complicated decisions will be. Especially at a corporate level, pivotal choices must undergo several checks and balances before being enacted. The smaller the operation, the more control the owner has over the business.
• Ability to Attract Investors
  Investors want a sure bet. Most of these critical business players wouldn’t invest their money in operations that they cannot trust. That said, a more prominent organization has more leverage to provide their investors. The scale of a business and its structure is often a deciding factor for those who would provide the necessary proprietorship funding.
• Legal and Tax Requirements
  Legal and tax requirements can be a bane for most businesses. At a corporate scale, these requirements are often handled by a separate department. Nevertheless, bigger operations enjoy better tax rates than small and medium businesses.

 

What is a Sole Proprietorship?

The sole proprietorship is the most basic form of business ownership in the Philippines. This business structure only entails the overseeing of one person over the entire company. The business owner acts as the “sole proprietor” of the operation, who owns all business assets. Likewise, all liabilities are the responsibility of the registrant. In this business structure, there is no clear line between the owner’s personal and business assets and liabilities.

The sole proprietorship is the most common business structure in the Philippines. Its popularity can be attributed to its minimal set-up costs as well as the relatively simple requirements.

 

What are the Pros and Cons of Sole Proprietorship?

Pros

• Easy Set-Up, Low Costs
  Registering your business as a sole proprietorship is a relatively affordable and straightforward affair. Most of the steps in the registration process can be done by the owner without external assistance. It forgoes the need for binding contracts or the presence of partners.
• Easy Record-Keeping
  Because the owners’ assets and liabilities aren’t separated in a sole proprietorship, keeping track of the financial ins and outs within the organization is easy. That said, we still recommend separate bank accounts, persona, and business, for all company owners – sole proprietorship or otherwise.

Cons

• Unlimited Liability
  Sole proprietors do not enjoy any form of liability protection. This means that there is no legal difference between you and your business. Should you incur any form of debt, your personal assets may be seized in order to settle them. If running your business carries a level of risk, then sole proprietorship might not be for you.

 

What is a One-Person Corporation?

A One Person Corporation (OPC) is a new type of business structure that offers the full benefits of a sole proprietorship with the limited liability of a corporation. This form of business structure was only initially available to religious organizations.

An OPC has a single stakeholder who serves as both the director and president of the business. The stakeholder appoints a nominee and an alternate nominee in the unfortunate case that they become unable to perform their duties as an OPC.

Similar to a sole proprietorship, a one-person corporation is an ideal option for new businesses since it doesn’t require the presence and participation of multiple partners.

 

What are the Pros and Cons of Choosing the One-Person Corporation Structure? 

Pros

• Ability to Apply for Bank Loans
  One of the most significant drawbacks sole proprietors face is their inability to incur business debts. While the structure is similar, this isn’t the case for one-person corporations.
• Separation of Personal and Business Assets and Liability
  The biggest drawback of one-person corporations is the separation between personal and business assets and liabilities. Business owners enjoy all the control a sole proprietorship provides without the risks of being solely liable should anything go awry. If a company incurs any debts or other obligations, the owner’s personal assets would be well protected.

Cons

• More Paperwork
  Relative to registering as a partnership or a corporation, becoming a one-person corporation is still simpler. That said, there are additional requirements for this type of structure. The requirements may include annual audited financial statements, an explanatory report in response to audit findings and recommendations, and disclosure of all self-dealings between the OPC and the director.
• Limited to Certain Forms of Businesses
  Certain businesses aren’t allowed to register as a one-person corporation. Professionals like doctors, lawyers, and teachers cannot form an OPC. Likewise, banks and other financial institutions are also prohibited.

 

Choosing the proper business structure isn’t an easy decision to make. After all, it plays a role in the success of your business. We at Loft are eager to help you through the process. Reach out to us today to learn more about our services!